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Post Prior to Sanctions, Venezuela was Already a Shambles
Created by John Eipper on 10/10/19 5:28 AM

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Prior to Sanctions, Venezuela was Already a Shambles (José Ignacio Soler, Venezuela, 10/10/19 5:28 am)

Tor Guimaraes (October 7) seemed to question my claim that the US sanctions have had relatively little effect on the Venezuelan crisis. Maybe I did not explain myself clearly, or my explanation on the subject was not clearly understood.

First let's establish, once more, that Trump's sanctions have been in full effect only since early this year (2019). Before that date only minor financial sanctions were applied by the Obama administration to specific people in the government and not on the economy or the financial sector in general.

To show the Venezuelan crisis in the period from 1999 (the first year of the regime) to 2018 (before the sanctions) let's review some crucial facts.

For instance:

--Venezuela's GDP has been contracted for 5 or 6 years with negative indexes up to an estimated -10% in 2018. This was prior to the sanctions.

--Hyperinflation and devaluation before the sanctions were progressively growing at unparalleled levels, as I have previously written on WAIS.

--Oil production in 1999 was 4.3 million barrels/day; in 2018 it was about 1M B/day (presently in 2019 it is around 700,000).

--The foreign debt in 1999 was about US$30 billion; in 2018 it was US$320 billion (nowadays in default).

--Foreign currency reserves were reduced from more than US$100 billion to less than US$8 billion.

--During that period more than 50,000 small, medium and large private businesses (industrial, agricultural, food, pharmaceuticals, etc.) closed up or were expropriated by the government and eventually closed as well (currently the industrial production capacity is only around 25% of peak levels).

--More than 300 government-owned large industries (iron, aluminum, food, chemicals, etc.) were brought to ruin and are practically closed up.

--During that period more than US$1000 billion from government budgets was wasted on futile projects, "social missions" or else "disappeared" altogether.

--The extreme growth of poverty to a previously unimaginable number (this is estimated to be 70% of the population; retirement pensions and minimum salaries for instance are now at less than US$2/month).

--Water, electricity, social security and other public services have failed or or collapsed altogether. Blackouts, shortages and so forth have been aggravated in that period as never before in the past, due to a lack of maintenance and necessary upgrade investments.

--To make the final argument, the number of Venezuelans escaping the crisis to neighboring countries in that period (1998-2018) has amounted to more than 3.5 million people (in 2019 more than 5 million!). This is estimated to be the greatest wave of emigration in modern times, even greater than Syrian or elsewhere).

Whether the current US sanctions will aggravate the situation remains to be seen in the near future. But contrary to what you might expect, as a product of the government's disguised dollarization of the economy, the scarcity of basic products, spare parts, food, medicines, etc. has been significantly reduced. Therefore, the supposed daily effects of the those sanctions are not really noticed by the general population.

A question that many Venezuelans are asking is this: Where is the foreign cash being used in common transactions coming from? It seems from several sources, since exchange currencies controls have been practically eliminated. They come from private savings, foreign credit cards, banking transferals and family remittances from emigrants abroad. Perhaps most importantly, the cash is coming from money laundering of suspected illegal activities. (For instance, according to sources this week, on the Brazilian border, authorities from that country found a truck on its way to this country with more than US$300 million in cash in a hidden compartment).

Finally, I hope those facts better explain that the current socio-economic crisis is not the product of sanctions. The crisis has been developing for a long time, because of ideological stupidity, ineptitude and corruption. The hypothesis of whether the economy would improve by canceling the sanctions is difficult to answer, but considering only the facts mentioned above, it is obvious this situation would be anyway very difficult to reverse without necessary radical structural reforms, something this regime is hardly capable of doing.

JE comments:  The human exodus from Venezuela has impacted much of the world; it's a demographic phenomenon of historic proportions.  Both in Colombia and Chile, during my recent travels, I've heard complaints about "esos venezolanos" who hang out on the streets and (according to the locals' accounts) drain national services and cause mischief.  At the other end of the stereotype spectrum, a great number of Venezuelan professionals (especially physicians) have greatly increased the human capital in other Latin American nations.  I heard this view as well when I was in Chile.

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  • Venezuela Used to Have "Too Much Money" (Timothy Brown, USA 10/11/19 5:37 AM)
    More years ago than I care to count, when I was being transferred from Paraguay, I was offered the Consul General position in Maracaibo, Venezuela.

    When I researched the position, I was told that one of the biggest problem was that Venezuela had an excessively large surplus of funds generated by their petroleum export. Venezuela's problem was that they had too much money. How times change!

    One of my favorite saying is this:

    "Under Capitalism the millionaires are all Capitalists, while under Marxism all the millionaires are Marxists. Either way its the worker bees that get screwed."

    JE comments: This is a corollary to one of my favorite socio-political truisms. I like to put it on WAIS about once per year: "With capitalism, Man exploits Man. Under communism, it's the other way around." (This maxim long predates the use of gender-inclusive language.)

    Is there such a thing as "too much money"? A nation or people can suffer when the wealth comes from one natural resource. What do you do when the price collapses or the supply runs out? And in the meantime, you have the problem of inflation (more money chasing the same amount of goods) and the tendency of the national work ethic to atrophy. Think of Venezuela in the 1970s, Nauru until the end of guano, or silver-rich Peru in Colonial times.

    Extreme wealth has a way of turning into extreme poverty. This is a topic worthy of further discussion.

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    • Visiting Venezuela in 1970 (Henry Levin, USA 10/11/19 8:48 AM)
      I first went to Venezuela in Caracas in 1970. It was a strange place, 12 years removed from the dictator, Pérez Jiménez. Under the Dictator, cars were forbidden to use their horns, so the older cars all had dents on the door on the driver's side from pounding the door by using their shoes to make a fearsome rhythm on the door and damaging the metal.

      But, by 1970 you had the other reaction to buy a car with a very loud horn playing La Cucaracha or some other loud and noisy sound creating an impossible cacophony. There were still occasional gunshots from the roof to the street, mostly random, but in some gang neighborhoods. People had a good sense of humor. Subsequent visits took me to Guyana and the Cascadas, very beautiful. The overall situation was optimistic, and Venezuelans had great sense of humor. Incomes were rising, and people ate well. What a change.

      JE comments:  Gracias, Hank!  If I could make one generalization about Latin America cities, it's this:  noise.  Caracas under Pérez Jiménez must have been eerily quiet.  The quietest major city I've visited in recent times is Berlin.  This is more from the Germanic sense of order than any prohibition of honking.

      Google tells us that Zurich is the world's quietest city.  Perhaps, but I've never been.

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      • Calling at Venezuelan Ports, 1955 Onward (Eugenio Battaglia, Italy 10/12/19 4:00 AM)
        Continuing with the topic of Henry Levin's 1970 visit to Venezuela, let me share my distant memories of that country:

        During my career at sea, I called at various ports of the proud "Cuna del Libertador" [Cradle of the Liberator]. First at La Guaira and later with tankers at various ports such as Maracaibo, Punta Cardón, Puerto Cabello, etc. As a captain I even obtained the license of Práctico at Maracaibo. The more fascinating trips were the ones going inland, navigating upriver on the Río San Juan and the Río Orinoco. On these two rivers it was a question of luck just not to run aground. On the Río San Juan in order to turn to come back it was necessary to actually go aground on the bank of the river with the bow and then pivot around the bow.

        The bottom was mud and vegetation. The first time that I experienced this maneuver I was not very enthusiastic about it.

        I always had a very good time with nice people and fantastic chicas. Moreover, I fortunately never went aground save the maneuver on the Río San Juan.

        However my first impression was negative: I was a cadet on a passenger ship regularly calling at La Guaira on her way to main South American ports to reach Valparaíso. This ship would "unload," mostly in Venezuela, Italian immigrants from South Italy and many were also refugees from Istria, Fiume and Dalmatia. These poor people had left their homes to remain Italian in other parts of the country, but the new Italy--lay, democratic and antifascist--preferred to send them away in order to avoid problems.

        It was in April 1955, and Pérez Jiménez was president. During my first call as cadet, at La Guaira, the seaman in charge of raising the national flags made a "terrible" mistake. He raised the Venezuelan flag on the left arm of the mast instead of the right side. Local authorities became angry and wanted to block the vessel for such a "terrible offense." The apologies of the Captain and the immediate correction of the position of the flag were not sufficient. After a long quarrel, the problem was finally solved with a fine. To be honest the Venezuelans were right but their reaction seemed to me rather exaggerated, probably was the "Pérez Jiménez atmosphere."

        As Chief Officer I witnessed another quarrel, and this time it was funny. I was at Punta Cardón and I went to the Captain's Office to see the Captain quarreling with the Immigration/Custom Officers. They were shouting. The problem was the language, in South America, the authorities at ports wanted to speak only in Castellano or Portuguese (better say Brazilian) and my captain did not speak much Castellano. The locals were asking, "¿Cuánto lastre tienes?" (How much ballast do you have?) Unfortunately, as an old captain of cargo ships, the Captain understood "lastre" as slabs and swore that on board there was no lastre at all, which is impossible for a newly arrived tanker, so they were screaming at each other like hell. It was easy for me to solve the question with no problems.

        Now I am very sorry about Venezuela's economic /political situation.  As everybody knows I do not like "Los Rojos" but at the same time I do not like sanctions and I wish all the best for the Venezuelan people.

        JE comments:  Eugenio, it must take nerves of steel to beach the front of your ship and pivot around.  What could you possibly do if you get stuck?  A tow truck won't help much.

        I am also moved by your experience of unloading your countrymen and countrywomen in a distant land.  For a staunch nationalist, it can only be a demoralizing thing to observe.  A curiosity:  have you heard of these emigrants (or their children/grandchildren) returning to Italy in large numbers?


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        • Are Italo-Venezuelans Returning? (Eugenio Battaglia, Italy 10/13/19 5:40 AM)
          Thank you, John E, for your nice comment on my post of October 12th. You really got my point.

          To answer your question, I have heard that various Italians in Venezuela, including some children and grandchildren of refugees from Istria, Fiume and Dalmatia, have asked to return to Italy and to recover their Italian nationality if lost. Unfortunately the topic is not discussed much.  The argument is the "invasion" from the African immigrants.

          JE comments:  The first wave of "returning" Italians came from Argentina, in the chaotic 1970s and '80s.  The rules used to be that you could claim Italian nationality if you had one documented grandparent born in Italy, which probably 50% of Argentines could/can do.  It was more complicated to recover Spanish nationality.  Eugenio, I'm summarizing a vague memory here.  Do you know if Italy's laws are the same at present?

          The greatest returnee from Argentina may have been Alejandro de Tomaso, of Formula I and automotive fame, although he (re)settled in Italy (Modena) during the Perón era.  The logo of the legendary Pantera featured the national colors of Argentina.  See below.

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          • Italy's Laws for Returning Emigrants (Eugenio Battaglia, Italy 10/14/19 3:57 AM)
            Answering John E's question about the recovery of Italian citizenship, the law of "Jus Sanguinis" is still valid.

            This law is very old, from 1912. Originally it referred to the descendant of an Italian father.  After the new Italian constitution of 31 December 1947, the descendant of an Italian mother can also recover Italian citizenship. The interested person must present the appropriate documentation to the Italian Consulate in his/her present town, in primis the birth certificate of the ancestor provided by the Italian town from which the same ancestor moved abroad. In some cases this may be a problem, as the descendants of a distant ancestor may not exactly be aware of the little village from where he/she was from.

            The local Consul must verify that the ancestor never officially renounced Italian citizenship.

            Using this law many non-citizen persons of Italian nationality could enter Italy.

            After the long-overdue death of Tito and the dissolution of Yugoslavia, many Italians from the East Adriatic areas could enter Italy under this law. The exodus of this population from the East Adriatic areas is the fourth after 1866 (direct order of oppression by the Austrian Emperor Franz Josef), 1919 (after Woodrow Wilson's decision to favor the new Kingdom of the Croats, Slovenians and Serbs), and 1945-'47 (after the Diktat Peace Treaty).

            See the study below about returning Argentines:


            JE comments:  Lots of interesting data in this study.  One number that stands out:  already in 1991 less than 1% of Argentines were Italian-born.  In 1914, one-quarter of the residents of Buenos Aires were born in Italy, and the percentage may have been even higher in 1930.

            Eugenio, are Argentine immigrant/"returnees" in Italy received with special affection, or are the locals fed up with immigrants regardless of their provenance--unless, of course, you're the Pope?

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  • Venezuela Crisis, Continued: What is to be Done? (Tor Guimaraes, USA 10/18/19 3:08 AM)
    Obviously the US government disagrees with José Ignacio Soler's claim that the US sanctions have had relatively little effect on the Venezuelan crisis (October 10). Otherwise, why would they persist?

    One interesting fact that no one has mentioned in this Forum yet, is that when Erdogan faced the attempted coup some years ago, the Venezuelan government was very sympathetic and offered to help. Under Chávez the Venezuelan gold reserves were physically brought back home.  Now this gold has been used to pay for food and other imports from Turkey. I did not know about this close relationship.

    José Ignacio wrote, "the Venezuelan crisis has been developing for a long time, because of ideological stupidity, ineptitude and corruption. The hypothesis of whether the economy would improve by canceling the sanctions is difficult to answer, but considering only the facts mentioned above, it is obvious this situation would be anyway very difficult to reverse without necessary radical structural reforms, something this regime is hardly capable of doing."

    What does he propose the Venezuelan people do? Replace the present government with a US puppet regime as usual?

    JE comments:  We must be aware that this question could put our friend in a compromising position.  Regarding the impact of the sanctions, would would be in a better place to judge, a citizen in Caracas or the US government?

    Let's explore further the Turkey connection.  I'd like to know more about the Ankara-Caracas axis.  Erdogan himself just faced a few days of US sanctions, and now has agreed to a cease-fire in Northern Syria.  Can we credit Trump with a "win" here?  Granted, does it count as a win when you caused the crisis in the first place?

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